June 6, 2023

PALO ALTO, Calif. (Reuters) – St. Louis Federal Reserve Bank President James Bullard, an early and outspoken advocate within the US central bank of rapid rate hikes to curb rising inflation, expressed cautious optimism on Friday that the effort is working .

“Monetary policy is now at the low end of what is arguably sufficiently restrictive given current macroeconomic conditions,” Bullard said in remarks prepared for a monetary policy conference at the Hoover Institution.

The pandemic government support that fueled high inflation is largely being spent, and the Fed’s policy rate, which was near zero 14 months ago, is now at 5%-5.25% and is beginning to affect the economy.

Inflation expectations, which had risen last year, have now fallen back to levels Bullard says are consistent with the Fed’s inflation target of 2%.

Still, Bullard said, households have about $400 billion more in savings than was usual in the pre-pandemic era, representing what could lead to more inflation; and the “zone” that forms sufficiently restrictive rates can fluctuate depending on incoming data.

Accordingly, he said, “prospects for continued disinflation are good, but not guaranteed.”

Fed Chair Jerome Powell signaled that a pause could be the right thing to do as the Fed assesses inflation progress and the impact of the recent banking sector stress on credit conditions.

Bullard said it was open to June earlier this month, though interest rates may need to rise further. He did not specifically address the June meeting in his prepared remarks on Friday.

(Reporting by Ann Saphir; Editing by Diane Craft)